BOUNDED RATIONALITY

BOUNDED RATIONALITYA Research study

NATIONAL LAW UNIVERSITY,JODHPUR

ORGANIZATIONAL

BEHAVIOU

R

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BOUNDED RATIONALITY

Herbert Simon

Organizational Behaviour, Project, NLU, Jodhpur

• The term bounded rationality was coined by Herbert Simon•Most people are not completely rational that is they are only partially rational, in fact they are emotional or irrational in remaining part of their action boundedly rational agents experience limits in formulating and solving complex problems and in processing (receiving, storing, retrieving, transmitting) information.

3Organizational Behaviour, Project, NLU, Jodhpur

•PRINCIPLE OF SATISFACTION• Limited list of more conspicuous ideas

• Familiar criteria and previously tried-and-

true solutions

• “good enough” criterion

•INTUITIVE DECISION MAKING• More than using common sense

•HEURISTICS• Judgments on information that is readily

available

• Seeing identical situations

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FIELD STUDY:


BANK OF RAJASTHAN LTD., Lachoo Memorial College, Jodhpur

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RESEARCH OBJECTIVES:


To identify the reasons wherein employees use Bounded

Rationality.

To determine scope of bounded rationality in practice in

To measure the consequences of Bounded Rationality.

To suggest measures to prevent the impact of Bounded

Rationality.

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DATA ANALYSIS


1. In which cases you can afford to take decision with limited information? Why?a) Routine decisions b) Time is limited c) Limited resourcesd) Others please specify

option aoption b

option coption d

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2

4

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No. of respondents


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2. What according to you is most important quality of managers on which success of such decisions depends?

a) Experienceb) Just a matter of chancec) Does not affect much as loss suffered due to their failure is

negligibled) Others please specify

option aoption b

option coption d

01234567 6

1

0 4th op-tion, 0

No. of respondents


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3. What is the frequency of such decisions in your job?

a) Rarelyb) Frequentlyc) Only when time is limitedd) Others please specify

option aoption b

option coption d

1

2

3

4

5

6

7

3

2 3rd option, 2

No. of respondents


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4. Were you satisfied by the decisions taken by you?

a) Highly satisfied b) Satisfied c) Dissatisfiedd) Highly dissatisfied

option aoption b

option coption d

0

1

2

3

4

5

6

7

1

4

2

0

No. of respondents


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5. Which factors help while taking decisions in such conditions?

a) Ability b) Rules of thumb c) Personal experienced) Others (Specify)

option aoption b

option coption d

0

1

2

3

4

5

6

7

2

1

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No. of respondents


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6. Which factors influence these decisions?a) Past decisions related to such conditions b) Events recently occurred c) Stereotypes d) Others please specify

option aoption b

option coption d

0

1

2

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6

7

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No. of respondents


7. On which level of management such decisions are usually taken?

a) Top b) Middlec) Lowerd) Combinations of above, please specify

option aoption b

option coption d

0

1

2

3

4

5

6

7

2

4

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No.of respondents


8. “In recent times frequency of such decisions are increasing in the organisations.” Do you agree with this?

a) Highly agreed b) Agreed c) Disagreedd) Highly disagreede) Can’t say

option aoption b

option coption d

option e

01234567

1

6

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No.of respondents


9. If agreed then what is the reason behind this?a) Increased mental capabilities of new managersb) High work loadc) Trained managersd) Time constrainte) Others please specify

option aoption b

option coption d

option e

0

1

2

3

4

5

6

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23

0

2

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No.of respondents


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10. What kind of loss does the organisation suffers due to the irrational decisions taken?

a) Managers start relying more on such decisions which affects their information processing capability

b) Failure of decisions will increasec) Decreases the interaction of the organisation with the

external environmentd) Others please specify

option aoption b

option coption d

01234567

0

2

4

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No.of respondents


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11. Managers often take decisions based on:a) Available informationb) Representation of the problemc) Defer the decision because of person’s backgroundd) Caste, creed sex, community.e) Others (specify)

option aoption b

option coption d

option e

01234567

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2 2

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No.of respondents


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12. Excessive manpower results when:

a) Preference is given to ad-hoc policies b) Accommodate members on local referencec) Belief in personal loyaltyd) Distribution of poverty e) Others (specify)

option aoption b

option coption d

option e

01234567

0

5

1

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No.of respondents


13. Have you ever taken any decision in favour of your relative or friend? Why?

a) Due to disabilityb) Preference c) In influence of powerd) Others please specify

option aoption b

option coption d

0

1

2

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7

11

4

1

No.of respondents

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1st OBJECTIVE & RELATED QUESTIONS


To identify the reasons wherein employees use

Bounded Rationality.In which cases you can afford to take decision with limited

information and why?

Which factors help while taking decisions in such conditions?

Which factors influence these decisions?

The decisions taken by managers are based on what criteria?

In what conditions does the manpower becomes excessive?

Have you ever taken any decision in favour of your relative or friend?

Most of the decisions are taken during routine work, the managers take such decisions influenced by similar past decisions and Events recently occurred and that available information plays

an important role in taking decisions.

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2nd OBJECTIVE & RELATED QUESTIONS


To determine scope of bounded rationality in

practice inWhat according to you is most important quality of

managers on which success of such decisions depends?

Were you satisfied by the decisions taken by you?

On which level of management such decisions are usually

taken?

“In recent times frequency of such decisions are

increasing in the organisations.” Do you agree with this?

If agreed then what is the reason behind this?These type of decisions are taken due to experience, most of them were satisfied with their decisions. These decisions are

usually taken in the middle level and they agree that frequency of these decisions is increasing because of high work load.

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3rd OBJECTIVE & RELATED QUESTIONS


To measure the consequences of Bounded Rationality.

What is the frequency of such decisions in your job?

What kind of loss does the organisation suffers due to

the irrational decisions taken?

Frequency of such decisions is increasing and that the interaction of the organisation with the external environment decreases.

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4th OBJECTIVE & RELATED QUESTIONS


To suggest measures to prevent the impact of Bounded Rationality.

Can you suggest some measures to prevent the impact of such decisions taken irrationally?

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FINDINGS:


These decisions are taken in routine life, and in which

experience plays a major role for the decision makers to arrive at

their decisions.

These type of decisions are generally taken when time is limited

and the decision takers were generally satisfied with their

decisions.

Most of the people believe that their personal experience helps

them in taking decisions, and that these decisions are influenced

by the past decisions taken earlier.

Most of the people agree that frequency of such decisions is

increasing most probably due to the high work load.

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IMPACTS


1. Bounded rationality (& satisficing) leads to self-

organizing

2. The managers start relying on the decisions taken by

the use of bounded rationality

3. The decision maker seeks self interest

4. The decision maker starts taking decisions rapidly

with limited information available

5. The rate of errors and the chances of failure of the

decision taken also increase

6. Negative outcomes too readily discounted

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SUGGESTIONS/RECOMMENDATIONS


1. Reducing complexity reduces costs . . . which include

mental cost too.

2. Judgment performance in professional settings is

determined by the joint effects of cognition and

incentives

3. Combine rational analysis with intuition

4. Use creativity-stimulation techniques

5. Be aware of biases.


Khelendra KumarMBA Insurance1st Semester

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BOUNDED RATIONALITY